London, UK — The prevailing extreme 40-year high levels of inflation, along with the weak and disturbing global economy, has pushed many financial analysts to start recommending investments in more safe assets, including gold. It might protect against highly volatile circumstances as well as the potential drop in the value of the U.S. dollar.
The leading crypto, Bitcoin, is also known as “digital gold in the cryptocurrency market.” There are many reasons crypto investors refer to BTC as gold, including somewhat the same movement in their price during times of uncertainty; both have a nature of store of value and might be because they provide incredible hedging services during inflation and economic crisis. However, to find an answer to whether the BTC is actually a better long-term investment than gold? We will continue to read the explanation provided by Christian Ricci, a crypto analyst from Investments Global. Let us see why he thinks Bitcoin might be a better long-term investment than gold.
1. Value Retention
Bitcoin and gold are both most commonly bought to hold their value through times of economic uncertainty. Gold has proved to be a secure investment option throughout a long history, offering the best wealth protection to investors. However, there is a flaw in precious metal gold that it has failed to consistently maintain its value over the course of the long term.
In simple terms, gold prices are subject to long sessions of price declines. For better understanding, we will explain it with an example; in September 2011, the price of gold was hovering around $1800 per ounce. After that, the gold continued to keep declining and moving under consolidation for about 9 years. The $1800 level was then reached in July 2020. Those gold traders, who might have bought gold during September 2011 and continued to hold it for long-term, would have waited about 9 years to turn their position green.
On the other hand, Bitcoin has never taken more than 3-4 years to regain its price levels and surpass its previous all-time high. It means Bitcoin could be a better store of value in the long-term on the basis of value retention.
2. Inflation Hedge
It has been historically proved that Gold and Bitcoin are both seen as good inflation hedges. The prices of both assets tend to rise during times of increasing consumer prices. However, the percentage of increase in value differs from gold to Bitcoin during inflation times. Today, the U.S. inflation is moving at its 40-years highest level; it has weighed on many investment classes, including stocks, forex, etc. However, inflationary hedge asset classes, including gold and Bitcoin, saw a surge in their value.
The only difference was the percentage with which they rose. Over the past two years, gold has seen a surge of 21.84%. The Bitcoin price experienced a rise of about 311% during the same period.
When the overall cost of living rises faster, most people find it challenging to handle the situation. It could be best to invest in an asset (BTC) that can outpace the rising inflation and help increase the wealth rather than maintain it (GOLD).
3. Geopolitical Uncertainty
Due to its safe-haven status, gold is often considered the best hedge against geopolitical tensions. People tend to shift to a more reliable and secure asset class during uncertain geopolitical conditions, like the prevailing Russia-Ukraine War.
However, it might be challenging to hold and carry valuable objects like gold in a place where there is a conflict or any other area that is subject to instability. These valuable objects are more prone to theft and seizure in a conflict zone.
On the other hand, bitcoin can be a secure kind of investment during times of geopolitical uncertainty. People holding bitcoin-only need to memorize their wallet keys and travel without the fear of losing their funds. The wallets can be accessed from anywhere around the world. In this way, the digital nature of BTC and the availability of decentralized exchanges globally makes BTC a more viable and secure option for long-term investment.
4. Scarce and Deflationary Nature
Both gold and bitcoin are considered asset classes with a scarce nature. Gold is regarded as a good investment because of its scarcity and supply constraints. However, when it is compared to Bitcoin, it is not as scarce and deflationary as the bitcoin. Whenever the price of gold reaches an all-time high level, the supply is increased to bring down the costs of mining and extracting.
Whereas Bitcoin has a fixed supply of 21 million coins, and it will not exceed the limit after it has reached the maximum level. When all the coins are mined, it would not be easy to bring down the price by increasing the supply.
Furthermore, every bitcoin comes with a location and can be verified due to the use of blockchain technology. On the other hand, the actual supply of gold is unknown and will remain anonymous as it cannot be tracked. It means bitcoin is more scarce and deflationary than gold making it a better option for long-term investment.
5. Future Potential
With the cryptocurrency invention, the whole monetary system of the world has seen a revolution. After the barter system, coins made of metals like gold and silver were used as a medium of exchange. As the economies developed, the paper money system was introduced. Foreign exchange currencies gathered attention leaving behind the metal age. People started using paper money, and then the digital form of paper money was presented, which laid down the base for cryptocurrencies.
Now the current digital age, digital coins like cryptocurrencies have started to take hold of the money market. The fast transaction speed, anonymity, low transaction cost, and much more features associated with digital coins have made cryptocurrencies the most popular medium of exchange in the digital world.
Most people from today’s generation have never seen a gold or silver coin in person, and they prefer the latest technological advancements. Bitcoin has laid the foundation of digital coins, and being the leading crypto, it holds great future potential as a future of medium-of-exchange. At the same time, gold is not widely accepted as a medium of exchange in this modern era of technology.
Disclaimer: Our content is intended to be used for informational purposes only. It is very important to do your own research before making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find on this article and wish to rely upon, whether for the purpose of making an investment decision or otherwise.
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